Silk Mill tax relief debated (revised)

Thursday

Jan 31, 2013 at 5:39 PMFeb 2, 2013 at 4:30 PM

Editor's note: This is a corrected version. Attorney Anthony Waldron stated that the Hawley Siilk Mill LLC paid approximately $30,000 in permit fees to the Borough for 2011 and 2012, not $300,000. In addition, James Downey, not John Iona, made comment from the audience.

By Peter Becker

Managing Editor

HAWLEY- An intense but civil debate over Hawley Silk Mill's tax relief proposal lasted over two hours Wednesday night Jan. 30 at the Hawley Fire House. The larger venue was chosen over the Borough Hall due to the extra seating room, with approximately 40 -50 people in the audience.

Unclear is what advancement or change in position the exchange propelled.

Silk Mill partner and attorney, Anthony Waldron II, and managing partner Justin Genzlinger, detailed the economic benefit the Silk Mill has given the region, and importance as a tax base to Hawley, being the single largest taxpayer. Silk Mill partner John Shuman reviewed their progress in the past four years, since the group of investors purchased the former Castle Antiques- originally the grand blue stone Bellemonte Silk Mill, and transformed it as a place of higher education, public services and business.

Facing the crowd in line were the seven Council members, secretary, mayor and borough solicitor. While many remarks were offered acknowledging the good work the Silk Mill management has done, several Council members opened with grave concern over the even temporary loss of part of the Silk Mill tax money, funds that were budgeted by the borough.

'Follow the law'

Brian Smith, president of the Wayne County Board of Commissioners, told with force the need to follow the law. He vigorously stressed that the legislative authority upon which the Silk Mill is relying for tax relief, does not apply to past projects, but only to new business development. He said that section 6A of the Local Economic Revitalization Tax Assistance (LERTA) Act requires that the abatement be requested at the onset. (The law states that application must be made when the building permit is secured.)

Smith said he is sensitive to people's tax problems, hearing their pleas to the Wayne County Board of Assessments and Tax Appeals. Nonetheless, he stated that if they were to compromise with the law nothing would stop someone else from asking for a tax break, saying they started the project a few years ago.

The procedure in LERTA is in place, he said, because people- local government- relies on the revenue and decides their budget based on the tax assessments. "If you begin to go backwards things start to crumble," he said.

Justin Genzlinger replied that their legal counsel has a different interpretation of LERTA. He asked to hear the legal opinion of the county and school district as well, at a hearing.

Waldron explained that the Silk Mill partnership does not disagree that tax relief offered through LERTA cannot go backward and ask for tax money back. He asserted that LERTA has no prohibition against applying the relief for work that was started earlier, and cited a Commonwealth Court decision that left this up to local taxing authorities to decide.

What they are asking

Hawley Silk Mill LLC is asking for a temporary tax abatement only on the project improvements done since 2009, which are the basis for the "massive" tax assessment increase they experienced last year. LERTA allows up to 10 years; the Silk Mill is asking for only five years, in which time, taxes on the improvements would be gradually phased in.

Enacting LERTA would open opportunities for other businesses to apply, using criteria set by the borough for minimum financial investment in the project and number of jobs brought to town. The law requires that the borough first set boundaries in the community where LERTA could be applied, meeting certain definitions of a "distressed" or "deteriorated" area.

If the borough enacts the abatement, then the Wallenpaupack Area School District and County of Wayne could choose to provide tax relief for the applicant.

The purpose, Waldron said, was to not ask money back but to postpone the impact of the new tax burden to help the project move forward.

The numbers

How much money is involved?

In round numbers, real estate taxes for the Hawley Silk Mill LLC- for the main building and parking lot- leaped from $28,000 to $121,000 a year. "It was a shock to me," said Shuman.

Waldron explained that a huge investment was made in the project, with over $10 million in improvements. A low interest loan was secured. "This is not a money making endeavor," he said. There were cost over-runs. Just one was the unexpected need to replace the roof, which cost about $500,000.

The tax on the improvements, in round numbers, comes to $73,000 a year. Hawley Borough would receive $13,000 of that.

Waldron noted that $13,000 is the equivalent of taxes on 60 new homes, valued at $100,000 each.

Paid over 25 years, with the LERTA proposal the borough would net $287,300.

Without the LERTA tax abatement, the borough would receive $325,000. The difference is $37,700 (11.6%).

Combined with County and School District taxes, with LERTA the Silk Mill taxes would be $2,311,000. Without LERTA, the taxes total $2,600,000.

In 2012, the Silk Mill had 20 firms that employed 101 people with a payroll of about $2.8 million. These firms generated about $7.3 million in sales. Proprietor income totaled approximately $500,000.

Total estimated taxes were $1.1 million, consisting of an estimated $700,000 in federal taxes and an estimated $400,000 in state and local taxes.

Waldron noted that the Silk Mill paid approximately $30,000 in permit fees in 2011 and 2012. That part retained by the borough, he said, is equivalent to taxes paid for two years by 68 homes valued at $100,000 each.

Serve as a model

Wood reminded that companies considering locating will want to know up front, what tax incentive programs are offered. That day, she had that question from a prospective developer that came to look at the Sterling Business Park that WEDCO established off I-84 in Sterling Township.

Howard Grossman, retired director of the forerunner of NEPA and on the Advisory Board of the Hawley Silk Mill, suggested that Hawley Borough has the opportunity in enacting LERTA, to serve as a model for other communities to see the benefit of such programs for economic revitalization.

Council member Mary Sanders asked if the ordinance was enacted, would the Silk Mill be able to manage with the abatement or would they return in a few years and ask the borough for more help. Waldron noted that LERTA may only be applied once, for a business.

Jack Spall, chairman of the School District Board, stated that the District supports business development and sees the addition of Lackawanna College at the Silk Mill as a "tremendous asset." The District, however, also must represent their taxpayers, and is waiting to see what the borough will do before taking a position. The District does have a legal opinion on what the District may do.

Sue Currier, vice-president, Downtown Hawley Partnership, said that they have discussed LERTA and other commercial areas in town that may be able to benefit from the program. She said that the Partnership recommends that LERTA be approved, to help foster an environment for broadening the tax base and bringing in jobs.

Council offers views

At the onset, borough officials expressed their feelings.

Mayor Kevin Hawk said a tax abatement would be hard when they are trying to make budget for the police department.

Council member Barbara Corrigan said they cant afford it with each department over spent.

Council vice-president Mary Sanders is concerned about the retroactive aspect, and comparing the sample ordinances Waldron provided for the borough and county. She questioned who Hawley is competing with, for lower taxes in attracting business. The tax burden cannot always be made up by the residents.

Council member Joseph Faubel reminded they must be fair to everyone.

Council member Elaine Herzog said the Silk Mill is the biggest local project since Lake Wallpaupack was created. While she is concerned about the timing, with borough budgets counting on the revenue, she said it was not fair or accurate to use "scare tactics" that the borough was heading over it's own "fiscal cliff." She said that LERTA is a tool they could use to increase the tax base.

Council member Michele Rojas stated it was hard to see how criteria for a deteriorated community fits. It is also hard to put the burden back on the taxpayers.

Council member John Robertson noted the existing problems with 64 delinquent sewer properties and costs raising for residents. He hopes that Downtown Hawley Partnership can have a plan to stimulate new business coming in and fill empty stores.

Council President Donald Kyzer related concern from some business people that established a "distressed" district would lower property values.

Borough solicitor Robert Bernathy said it was up to the borough to decide, but he has difficulty seeing how the town's commercial district would it the definition for a distressed or deteriorated community. He said he did not see structures that were unsafe, unsightly, unsanitary or creating a public nuisance.

On that point, Waldron replied that the criteria can also include buildings not being used to their full potential, and the relatively high rate of poverty level in Hawley, 20 percent. LERTA, Waldron said, could provide the tax incentive for a developer to rehabilitate or replace an old building to get the best use of the property.

Members of the public also spoke.

Jane Varcoe, Waymart Council member, said she was here to observe. She spoke passionately in favor of backing the Silk Mill. As a historian, she said she is in awe when she looks at the building and what has been done, and feels the borough needs to work this out to encourage the Silk Mill and the community.

John Nolan, County Chief Tax Assessor, said that the number of vacant stores in Hawley was not unusual.

Barbara Middaugh, Borough Tax Collector, said she does not believe Hawley residents can afford any extra tax burden if the abatement falls back on them.

Diane Billard said some other way may need to be found other than impacting residents, many who are on fixed or low incomes.

James Downey, who owns a vacant storefront downtown that will soon have a tenant, said that his property is not "distressed."

Wallenpaupack Superintendent Michael Silsby said that the tax abatement would impact their budget, but they are accustomed to dealing with lost revenue every year through tax appeals. Commissioner Smith said the abatement would make a shortfall in the county budget.

'Deserve a hearing'

Justin Genzlinger told Council, "We heard from Mr. Smith. We have put forth enough expertise on the merits and applicability of LERTA to warrant a hearing."

He took note that the Silk Mill is the largest taxpayer in Hawley; with their other properties that are "three of the top 10" and "one in the top 14." He said it hurts to hear the connotation that the Silk Mill is financially harming the borough by their request. "We deserve a hearing," Genzlinger said.

Borough Council will need to decide whether to set a hearing, to establish a "distressed" section where LERTA would apply. The matter will be on the agenda for the regular meeting on Wednesday, Feb. 13 at 7 p.m., at Borough Hall.